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February 2018

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Dr. Abdul Hafeez Shaikh, Federal Finance Minister, in continuation of the previous series of meetings with representatives of KCCI and other stakeholders in a final meeting held at Islamabad on 3/31/2011, concluded to maintain zero rated status for all five sectors for the purpose of exports
as well as supply to registered persons.

Dr. Hafeez stated that IMF conditions had made it imperative to impose tax across the board on all the sectors of economy. It was decided that the Zero-rating will remain intact if the supply chain is completed (from Spinning till Finished product) by Registered person to Registered person.

The Finance Minister appreciated the uniqueness of the Textile Sector which is responsible for 60 percent of exports and 42 percent of the urban employment. Finance Minister also understood
the problems being faced by the Textile Sector due to the Afghan Transit Trade and that any mode of front loading in form of sales-tax on textile sector should result in lowering the costs of smuggled goods making them more viable.

He agreed that tax should be such that the local textile products
remain competitive against the smuggled goods from Afghan Transit Trade. He expressed his concern on the inflationary impact of taxes on the poor masses. He assured that this should be long term policy for a period of at least three years. It was further decided to have two rates of tax viz. 6 percent at the yarn stage and 4 percent for any Value-Addition at their invoice value which would be charged only from unregistered persons on the basis of value of their supply.

Issues pertaining to withholding tax was also resolved by reducing it from 3.5 percent to 1 percent on goods, while FED will remain zero. With regards to parameters for audit a committee would be formed. SRO-509(I)/2007 has been restored.

They addressed threadbare on the issue of withdrawal of Zero-rating from all five export sectors including the textile sector. They expressed their contentions regarding problem due Afghan Transit Trade and multiplicity of taxes which had seriously affected the backbone of the economy – the Textile Sector.

The Finance Minister also promised to solve all the problems upto the satisfaction of Textile Sector. The stakeholders were happy at the win-win situation for both the Government side as well as the Textile Sector and expressed their profound gratitude to Finance Minister and the Government.